Journal of Invasive Cardiology

Most hospitals undertake an annual strategic planning process. Medical practices also plan, but less frequently. In fact, sometimes medical practices erroneously depend on a hospital market analysis for their planning. This paper serves as an opportunity to review key concepts in developing an analysis of a “market”.
Often a market analysis is a key component of the strategic plan. A detailed market analysis assists in identifying utilization rates, projecting future volume, assessing competitive position, developing an actual marketing plan, and is a vital component when researching potential new services/locations. While considerable time, thought, and effort goes into the analysis of various data components, one key component of the market analysis is often overlooked — defining the actual market.
The Hospital Service Area. The grouping of counties or zip codes into areas or “markets” is vital in market analysis. Such groupings enable advanced analysis on a rolled up basis. Often hospitals define primary, secondary, and (sometimes) tertiary service areas for use in market analysis. Such areas are often defined based on patient origin (the percentage of discharges a hospital received from a particular area in relation to the hospital’s overall discharges), market share (the percentage of discharges a hospital receives from a particular area in relation to the overall discharges generated in the area), or a combination of both factors. However, is a service area really a market? If you walked up to the average person on the street and asked them where they live, would they respond “in the primary service area for hospital X”?
In general, hospital service areas have nothing in common with the way people identify themselves as a community or “market” (an especially important point for clinical practices to remember). Consider a map displaying a primary and secondary service area for a particular hospital. The service areas will usually look likes a “bulls eye” with the primary service area being at the center and subsequent service areas radiating out in rings. The secondary market area is often 50+ miles across with a large hole in the middle (the primary service area). Look at the area on a map and ask yourself what do the people on one end of this service area have in common with those on the other end? Often the age mix of the population, household income, and travel patterns will be quite different. More importantly, if competitor hospitals are displayed on the map, you will note that often the hospitals in the area make no sense as a grouping. While this would not seem like a large problem, think of the purpose of creating an area or market. It allows you to examine data such as population, household income, market share, and utilization (inpatient days and discharges per 1,000) on a rolled up basis. Take marketshare as an example, if you examined a hospital on the edge of the secondary service area and then split the area in half you would probably find that the hospital’s market share on the half of the “donut” is relatively high while their marketshare on the other side of the donut is rather low. This is because your service area is specific to your hospital. However, in general, it will not be a good grouping to analyze competing hospital’s marketshare. If your competitor has a 75% marketshare on one side of the “donut” and a 25% marketshare on the other side, is it accurate to roll everything up and look at an overall marketshare of 50%?